Store Numbers Right on Target

Don Hogsett, November 14, 2005

Driven by robust same-store sales, wider margins and a rapidly growing credit business, third quarter profits from continuing operations at Target Corp. jumped 34.5 percent, to $435 million from $324 million last year.

Net income declined 18 percent, to $435 million from $531 million, but the year-over-year comparison is skewed by one-time items related to the sale of Mervyn's, which inflated last year's profit by $207 million.

Sales during the third quarter climbed 11.7 percent, to $11.9 billion from $10.6 billion, and the crucial gauge of same-store sales improved 5.9 percent. Credit card sales raced ahead 18.1 percent, to $343 million from $290 million. Total revenues, including merchandise and credit sales, rose 11.9 percent, to $12.2 billion from $10.9 billion.

In another big lift to the bottom line, margins widened substantially, more than offsetting rising costs. Helped largely by a higher markup, average gross margin was strengthened 120 basis points, or 1.2 percentage points, to 32.3 percent from 31.1 percent during the same period a year ago. A lower markdown rate and a reduction in inventory shrinkage also helped to boost margins.

Hurt largely by the effects of three hurricanes, operating costs climbed 40 basis points, or four-tenths of a percentage point, to 23.5 percent from 23.1 percent.

Going forward, CEO Bob Ulrich said, “We will continue to grow market share profitably in this year's fourth quarter and well beyond.”

Target Corp.

Qtr. 10/29 (x000) 2005 2004 % change
a. Net income in the year-ago third quarter included $4 million in earnings from the subsequently sold Mervyn's unit, and a $203 million gain on the sale of Mervyn's. Excluding the one-time items relating to Mervyn's, earnings from continuing operations this year improved by 34.5 percent, to $435 million from $324 million.
b. Earnings in the prior-year nine months included $75 million in earnings from the discontinued Mervyn's operation, and a $1.2 billion gain on the sale of Mervyn's. Excluding the one-time items, nine-month profits this year rose by 36.7 percent, to $1.5 billion from $1.1 billion.
Sales $11,863,000 $10,619,000 11.7
Oper. income (EBIT) 831,000 633,000 31.2
Net income 435,000 531,000a -18.0
Per share (diluted) 0.49 0.59 -16.3
Average gross margin 32.3% 31.1%
SG&A expenses 23.5% 23.1%
Nine months
Sales 34,701,000 30,805,000 12.6
Oper. income (EBIT) 2,717.000 2,192,000 24.0
Net income 1,469,000 2,373,000b -38.1
Per share (diluted) 1.65 2.59 -36.4
Average gross margin 32.5% 31.5%
SG&A expenses 22.9% 22.4%

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